Bangkok--22 Aug--Grant Thornton
- The US and UK lead the value level while Singapore and Hong Kong dominate the Asian region in both number and value
- Thailand: a small player just entering a big game
- Some signs of lowered barriers to investment
Over 250 Chinese companies worth in excess of US$14bn have been bought by international acquirers over the past year, with the United States, United Kingdom and Singapore leading the way in establishing a foothold in China's rapidly-expanding economy. However, the rate of increase in terms of inward merger and acquisition (M&A) investment into China appears to be static, with regulatory and often cultural issues still providing hurdles, according to new research carried out by Grant Thornton.
Deal volumes and values
In the 12 months to 30 June 2006*, a total of 266 international companies (worth US$14bn), from 41 different countries, bought a Chinese company. This is almost exactly the same number as the previous 12 months (268), but represents a 52% increase in deal value terms (from US$9bn to US$14bn). US companies claim a 26.1% market share and completed 62 deals worth a total of US$5,365m in the period. The UK, whilst strong on value, carried out 6% of deals and Singapore proved strong on both value and number of transactions with US$1,840m or 11% of activity. Hong Kong was one of the most active acquirers in the period and carried out 19% in deal volume terms. Thailand, with only four deals totalling US$83m, can be labelled as a "new player" in this field with just one or two large family conglomerates actively playing in the China acquisition market.
Peter Walker, Partner of Grant Thornton Thailand, expresses surprise that Thai companies, many with strong Chinese heritage, are not more active in the China acquisition market. He said, "The Grant Thornton IBOS 2006 survey corroborates these results, with 90% of Thai companies stating that they are not exporting or have no plan to export to the Chinese market. These two pieces of analysis potentially indicate that China is a bit of a "blind spot" for many Thai businesses."
Sector focus
In terms of deal volumes, the Chinese high technology sector accounted for the highest number of cross-border deal activity (16%). This sector was closely followed by the materials (14%), industrials (13%), financial services and consumer staples sector (both with a 12% market share). However, in terms of the highest value deals, the financial services sector proved to be head and shoulders above the rest, with a 71% market share and with almost US$10bn worth of international funds pouring into Chinese financial services companies.
Peter Walker continued: "It's attractive for all sectors wanting to invest in China. However, with the average financial services deal being US$322m, it is clear to see that this is currently where the greatest opportunities for investment lie."
"This trend can be attributed to several factors. Firstly, it has been one of the Chinese Government's key priorities to assist the nation's domestic financial services industry and to internationalise its financial services offering. As a result, Chinese banks are actively bringing in new personnel from all over the world to develop the sector. What's more, it is internationally recognised that China's financial services sector is big news. This means that many of the big investment houses are devising entry strategies into the market and buying stakes in Chinese banks before the market overheats."
Barriers to investment
Peter Walker, Partner of Grant Thornton Thailand, advises that there are still a number of hurdles to be overcome by international companies aspiring to invest in China.
"One of the major hurdles is the country's complex regulatory regime and its multi-faceted tax system. Any international investment on Chinese soil requires approval from a number of different regulators as well as from a host of different government agencies. Investors should also be mindful of the significant cultural differences that exist and make adequate
steps to prepare."
"Further, it is important to remember that the market for M&A in China's booming economy is still in its embryonic stages of development and Government reform can be a slow moving train." Peter Walker opined.
Developing a China Strategy
Peter Walker concluded that, "Thai companies need to seriously consider their position in relationship to China and the current economic boom. Thailand does have some competitive advantages in several areas and these can drive a more positive approach, considering export, alliance, acquisition and outsourcing opportunities. Sectors where Thai companies can leverage their knowledge include medical services, retailing, certain agricultural products, financial services and tourism. At Grant Thornton, we recommend that each Thai company includes a specific consideration for China in their strategic plans."
For further information please contact:
Peter Walker or Khun Nontakorn Kijthanapaisan, Grant Thornton Thailand
Tel: 02-654-3330 or [email protected]